Bitcoin and Ethereum are the most valuable cryptocurrencies by a wide margin, collectively worth $1.4 trillion. That means they account for 62% of the entire cryptocurrency market, and that popularity hasn’t escaped the notice of institutional investors. In fact, Bitcoin and Ethereum are the most popular digital assets traded by cryptocurrency hedge funds according to a recent study from PricewaterhouseCoopers.
Both assets still look like worthwhile investments, but less valuable cryptocurrencies probably offer more upside. For instance, Litecoin (CRYPTO:LTC) and Chainlink (CRYPTO:LINK) are the third- and fourth-most-popular assets among cryptocurrency hedge funds, respectively. But they have a collective market value of just $19 billion, meaning they account for less than 1% of total cryptocurrency value.
More importantly, another recent study, this one from Fidelity, suggests that institutional adoption of cryptocurrency is on the rise. As that trend plays out, the popularity enjoyed by Litecoin and Chainlink should translate into increased demand. That’s a compelling investment thesis in its own right — but there is more to like about these digital assets. Here’s what you should know.
Overall, Litecoin is very similar to Bitcoin. In fact, it was actually developed from Bitcoin’s source code, though a few noteworthy changes were made. First, the Litecoin blockchain is four times faster. Whereas Bitcoin transaction blocks are added to the chain every 10 minutes, that process takes just 2.5 minutes with Litecoin.
Additionally, and perhaps more importantly, Litecoin’s supply limit is four times higher. Whereas Bitcoin is limited to 21 million tokens, Litecoin is capped at 84 million. For that reason, just as Bitcoin is often called digital gold, Litecoin has earned a reputation as digital silver.
Why invest in Litecoin? Similar to precious metals that exist in finite quantities, Litecoin’s scarcity gives it value. Assuming demand continues to rise, Litecoin’s price should continue to rise as well. And given the interest among institutional investors, I think that’s a fair assumption to make. Moreover, with a market value of $10.4 billion — approximately 1% of Bitcoin’s value — it’s not hard to imagine Litecoin growing fivefold or even tenfold over the next decade.
Smart contracts are computer programs that execute under predefined conditions. Those programs are collections of code and data, and they form the heart of decentralized finance (DeFi) products. For instance, the Compound protocol is just a smart contract built on the Ethereum blockchain. Users can lend money to earn interest, or borrow money by paying interest — in either case, interest rates are set algorithmically based on supply and demand.
All of the data needed for the smart contract to function is available on the blockchain. But imagine a DeFi marketplace that allows users to wager on the outcome of real-world events (e.g. sports) or purchase real-world assets (e.g. artwork). The underlying smart contracts would need data that’s not readily available. For instance, which team won the sporting event? And what’s the current value of the real-world asset?
That’s where Chainlink fits into the picture. Chainlink is a decentralized network of oracles — entities such as Internet of Things (IoT) devices or application programming interfaces (API) — capable of bringing real-world data onto any blockchain. And the LINK token makes the whole system work. In order to participate, individuals who operate nodes (computers) in the oracle network must stake LINK. That keeps them honest and helps ensure the accuracy of the data. Similarly, node operators are paid in LINK when they provide data to a smart contract.
Why invest in Chainlink? The popularity of DeFi applications is accelerating, and as that trend continues, demand for oracles should rise. Of course, Chainlink is far from the only oracle network, but it is the most popular by a long shot. In fact, the network integrates with nearly 1,000 other blockchains and DeFi protocols, Chainlink has partnerships with companies like Alphabet‘s Google and Oracle, and its oracles currently provide data to smart contracts worth a collective $76.8 billion.
As more smart contracts require external data, Chainlink’s expansive ecosystem should translate into demand. And because oracles are paid in LINK, more smart contract operators will have to buy tokens, driving its price higher. That’s why this cryptocurrency looks like a smart long-term investment.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.